IFRS for SMEs – gathers momentum

It has been over a year now since the new IFRS standard for non-publicly accountable entities (‘IFRS for SMEs’) was issued. In that time, many governments around the world have been considering whether to allow or even prescribe the SME standard for non-listed entities, or whether they would prefer to continue with  local accounting standards.

In addition, many multinationals and other large entities around the world asked themselves whether one of the  benefits of global harmonisation of reporting might be  a single standard suitable for all subsidiaries instead of a flavour of local GAAPs? This process is ongoing.

Like all ready-made solutions, the SME standards may not be usable straight out of the box in some circumstances. The UK, for example, is considering  adopting the SME standard but has run into issues regarding compliance with EU Directives.

To get around this, they are proposing to adopt a ‘tweaked’ version (and, like Hong Kong, have replaced the tax section with IAS 12). France, and to some extent Germany, have rejected the SME because it does not fit with their integrated tax and accounting frameworks, which have only recently been overhauled. South Africa on the other hand has embraced the SME with open arms, adopting the standard while it was still in draft.

The Caribbean and some countries in South and Central America are very supportive and are considering quick adoption of the SME standard as their local GAAP. Some of these countries currently apply IFRS as the only standard. Some countries in South East Asia have already made the step towards the SME standard.

This highlights one of the difficulties that the SME faces – fitting into local legislation and requirements. You could argue that the impact is much reduced if we end up with many flavours or variants of the SME, although the prospect of international harmony probably falls way down the priority list of those that are not multinational already.
In any case, there is quite an appetite for the standard, although not everyone is convinced yet. According to the IASB, some 60 jurisdictions have adopted the SME standard or have made a public statement that they plan to adopt it. That’s not bad for a standard that has been in place now for around 15 months only.

In the meantime, PwC is developing tools and organising SME training around the world. PwC Inform contains materials such as comparisons with various local GAAPS and ‘e-check’, the disclosure checklist for SME financial statements. At the same time, we are visiting clients to talk them through the standard and its implications.

What about the IASB? They appointed a Board member, Paul Pacter, to be responsible for the SME standard. The IASB has also acknowledged that preparers and auditors will need guidance. The SME standard is deliberately light on detail, at 10% of the volume of IFRS, and concentrates on covering the significant areas and leaving users to fill in the gaps (sensibly) depending on their own circumstances.

It’s an admirable approach but open to different solutions to the same issue developing over time. So an IASB implementation group was established (SMEIG), of which two PwC partners are members: Signe Moen from Norway and Hugo van den Ende from The Netherlands. It will be interesting to see how the SMEIG operates; a light touch is envisaged by the IASB, although users do have a habit of asking for detailed guidance.

A lot has happened in one year. Nevertheless many governments, standard setters and larger companies still hesitate about the question whether or not to adopt the SME standard. The next couple of years will be conclusive in this respect.

I would as ever be interested in hearing your thoughts.